Debt: The one thing that we all dread. All people desire financial freedom, but very few people achieve their goal. Poor money management is the greatest problem especially when it comes to debt- bad debt. To most people debt is a way of life. The basic definition of debt is money borrowed by one person from another. Under this definition, debt is never bad or good. But, there are two types of debts bad and good. Bad debt is money that can’t be recovered. Good debt helps you to make money.

You can’t live without good debt as that is how you will get ahead. For you to become financially free, you have to learn how to pay off your bad debts stay free of them. Bad debt is money that you borrow and buy luxuries like clothes, cars, go for vacations, jewellery, etc.

To eliminate bad debt, there are two things that you need to do; limit your expenses and have a formula for debt repayment. Everyone has a formula for paying off the debt. Below are six steps that you can use.

Take note; this may not apply to everyone. This is just the formula I used to pay off my bad debts.

STEP ONE

Stop accumulating debt:

The first step for is to stop accumulating debt. When you notice that you have dug yourself in a hole, you STOP digging.

You need to limit your expense. This means being frugal. Most people think that frugality is a bad thing. But, if you are to succeed in getting out of debt, you need to be economical. Take an inventory of your expenses and then try to eliminate the expenses that you can leave without. Write down belt-tightening measures that are going to save you money each month. Commit to this process as your life depends on it.
Never shop on impulse. Shopping on impulse is what makes people get into debt. You need to control your desires.
Delayed gratification. If you seek short-term gratification, you will pay for it in the long-term. Never purchase the luxuries with a credit you will only be digging yourself deeper into debt.
STEP TWO
Take account of your debts

You cannot work on something you do not know. So, you need to take account of your debts. This is the toughest part because you will have to be true to yourself. You also need to indicate the amount of money that you owe. Make sure that you also write down how long it will take.

For example:

Credit card debt amounting to $2,000 with a minimum payment of $200. That means it will take you eight months to completely pay off the debt.
Your school loan amounting to $3,000 with a minimum payment of $300. It will take you ten months to complete the payment
You need to list all the debt including the ones you owe to your friends and family. They may not require the money back, but, by paying off your friends will help you develop self-discipline.
STEP THREE

Start paying off your debt

Once you have made your list, you need to start paying off the debt with the least number of months. If you pay off the debt, it will motivate you.

STEP FOUR

Move on to the next debt

Take the next debt with the least number of months and pay it off. Here is the tricky part; take the money from the first debt and add to this new debt. For example, take the first $200 you were paying and add $300. In total, you will be paying $500. This means that instead of taking ten months, your second loan will take you six months instead of ten months.

STEP FIVE

Find an alternative income generating channel

It is important for you to find an alternative source of income. It doesn’t have to be something time-consuming. A part-time side gig is perfect for you. The idea is to raise an extra amount of money, $50 to $100. The extra cash is to be used for your debt repayment. It will help you to pay the debt faster than you anticipated.

STEP SIX

Pay yourself

Most people don’t pay themselves, but by not doing so you will not be motivated. It makes sense to pay your debts first. However, if you don’t develop the discipline of paying yourself first, you will not be motivated to pay off your debts. Motivated you ask? Yes. When you pay yourself first, the pressure to pay off your creditors will make you come up with different solutions for paying them off.

To pay off yourself, you need to start small. Take three piggy banks; one for saving, investing and tithing then take 30% or the amount you are comfortable with from your income and put into the piggy banks i.e., 10 % in the three banks. After every month, deposit the money into your savings account and investment account. The tithing money, give it away to your favourite charity or church.

If you’ve found yourself in a bind or on the verge of falling behind on your payments. The best thing to do is contact your credit card, mortgage or auto loan companies and explain your situation.

Take action

If you have a car loan, you understand the importance of paying your loan on time. If you cannot make your payments on the exact due date.

You are granted a 30-day grace period to make a payment without having this late reported to the credit bureaus.

If you don’t think you’ll be able to make a payment before the 30-day grace period ends or foresee yourself being in a bind that will last longer than 30 days, there is something you should know.

Ignoring calls from your creditor is the wrong route to go.

*While you may feel embarrassed or reluctant to contact your creditor, you are not alone. Thousands of people fall behind on their payments due to financial hardships. The person on the other end of the phone is trained to handle these types of calls and will be more than willing to help you the best way they can.

What should you do?

Most car loans have a stipulation that allows you to defer your payments for a short amount of time while you get your finances situated. Other options besides deferment might be offered such as lower payments until you can make the full payment.

Your options will depend on your specific car loan and terms agreed upon at the time of sale.

If you are currently in good standing:

Call your creditor and explain that you’ve had some setbacks and ask about your options to defer your loan payment until you can make payments. This will usually give you about 2 months to catch up.

If you are currently not in good standing(late beyond 30 days):

Call your creditor back and explain that you’ve had some setbacks and would like to make a plan to catch up on your payments or defer a future payment. Ask about your options to defer your loan payment until you can make a payment. You will usually be asked to make your account at least current up to 30 days before a deferral can be granted.

How will this help you?

Car repossession doesn’t end well for anyone. Not you and certainly not your creditor. Once a car is repossessed, it is usually sold at an auction for a fraction of the cost. This is a lose-lose situation for everyone.

While your loan is in deferment you will not be reported late to the credit bureau as you have made an agreement with the company to pay at a later date.

The downside to this, of course, is that your loan agreement will be extended and you will end up paying more interest in the long run. This is, however, a better alternative to having your vehicle taken.

When can your car be repossessed?

It all depends on the specific car loan you have in place. You are usually considered in default of your loan agreement as soon as you miss a payment.

With that being said, you are granted a 30-day grace period. Some states allow cars to be repossessed after one missed payment. The longer you take to make your payment is one step closer to having your car taken and a serious ding on your credit report.

A repossession will remain on your credit for up to 7 years and hurt your chances of obtaining other car loans in the near future. Even after a repossession, you may still owe the difference between what you owed your lender and what your car was sold for. This is called a deficiency balance. A deficiency balance is usually the norm especially if you purchased a newer vehicle.

If you are dealing in today’s financial market you know how the lending capitals are helpful. They operate the liquidity of any business, organization, and other government entities. The plants and equipment are the compulsory assets that a company has fixed. The working capital can be considered a part of the operating capitals. The proper amount is found out by calculating current asset by deducting the deducting the current liabilities.

What Is Lending Capital?

This can also be characterized as a type of loan. The capital is generally granted to the business making professionals. They help in meeting the financial needs of a business. They are available not only for the small business but in fact mostly for the larger businesses. But these capitals can never be used to purchase assets or something that means financing for a longer time. There are several advantages of getting these kinds of capitals. These are as follows:

Handling the Financial Difficulties

In certain situations, some financial difficulties might arise in a company. If the businesses have assets they would go bankrupt if they are unable to pay their dues. So, in order to prevent such situations, the loans are generally provided. The companies can apply for the loans so that they can prevent the shortage and stabilize the situations. The business owner can thus, retain his ownership intact. When you borrow from such lenders then you will not have a tight obligation from the lenders to pay the money exactly on time like the banks do.

Collateral Is Not Required

Loans are of two types. They are secure and unsecured. The most common loans are found to be of the unsecured type. They are commonly for the small businesses with lesser to no risks. They also require having a good history.

No qualification restrictions are there for the businesses then that is there for the unsecured loans. Shorter terms of the loans should be applied for the short term loans. With this in hand, the money is spent on the business for a shorter period of time.

The Money Can Be Used

When you are taking the lending capital from any of the financial institutions there are very few restrictions on how you can utilize the money. They can be used for the maintenance of operations and increase the revenue opportunities.

Quicker Approval of Money

With these financial lending, you can get money fast from the lender without any hassles.

Thus, this process is considered to be a boon for the business making organizations when they are running short on their finances.

Unless you are privileged, most Australians will be in debt at some point in their life. From borrowing a high sum to buy a house to running up a credit card bill, living with a debt is just something that most people have to put up with. Here are a few of the most common types of debt:

Tax

One bill that can leave a nasty shock is the tax bill from the Australian Taxation Office (ATO). But at tax time there are plenty of options to pay this bill. There is the option to apply for automated and online payment plans for those with a debt of $100,000 or less, or a personal discussion with the ATO can assist those with a debt that exceeds that amount. In situations where this type of debt will leave you in dire financial hardship, the ATO has the ability to release a certain amount of the debt. Additionally, there is the option of a tax debt loan to give the desired support to clear any outstanding payment due.

Business

Substantial business debt can soon build up while attempting to grow your business, expand into new markets, or buy new stock. This is often seen when it is necessary to borrow money to raise the desired capital. From business credit cards and loans, as well as the wide range of overheads involved in running a business, it is very easy to let things get out of control. In times of a difficult economy this can quickly make things a lot worse. Any difficulties with business debt should be tackled as soon as possible. Prioritize the outstanding payments and look at professional financial advice or seeking other consolidation options.

Home loan

Borrowing money to purchase a home is a must for most people. A home loan is likely to be several hundred-thousand dollars. This makes it the biggest financial responsibility and lasts for a good number of years. Plus, there is the need to consider the interest charges that will be applied over the lifetime of the loan.

Financial discipline is essential when taking out a home loan. There are a few steps that help pay down this debt, such as looking for rates elsewhere every so often and making extra payments if possible to speed up the process.

Credit card

Credit cards give instant gratification and make it easy to spend money that you don’t really have. Many people spend without thinking about the long-term consequences. If it isn’t possible to pay back the money spent before the interest charges come into effect, the debt will soon start to rise. While the credit cards are convenient, they can have very high interest rates, with some rates at 20% or more. Also, if this type of debt is spread across several cards, the risk of the debt getting completely out of control is that much more possible.

If you are in a position of experiencing severe debt issues and threatened with legal action because of your ATO or other debts then the potential of applying for bankruptcy may be the preferred option.

Having too much debt seems to be a problem that a lot of people today are facing. Debt can be crippling because, the deeper you get into it, the harder it is to get out. The problem is compounded by the fact that having a lot of debt, especially unsecured debt like credit card debt, is more expensive if you have a bad credit score.

If your debt situation is particularly severe, you may be asking yourself how you can get rid of debt. The first thing to do to get rid of debt is to admit that you are facing a serious problem that needs your full commitment in order to resolve it. Here are steps to being debt-free:

Figure out how much debt you really have

First, you need to do what you should do whenever you face any serious problem: determine the nature of the problem and how bad it really is. In other words, you need to take careful account of your debt situation. When in debt, especially if you have multiple sources of debt, it can be tempting to avoid facing the truth about how much you really owe altogether. So, sit down with a piece of paper or a computer spreadsheet and simply add up all of your debt. The number you come up with is what you will target to become “zero” in the very near future. Imagine the relief you will feel when that happens!

Put your debt into categories

As you add it up, put each type of debt into its own category. The reason for this is that different types of debt should be treated differently. Examples of relevant categories include credit card debt, department store card debt, mortgage, second mortgage, auto loans, and equity lines of credit. Also, if you have multiple credit cards, for example, be sure to list each one separately.

Arrange in order of which to pay off first, by interest rate

Now, next to each debt instrument you have, write down the amount you owe and the interest rate for each one. Most likely, your credit cards will carry the highest interest rates, for example. Now, re-copy your list in the order of highest to lowest interest rate.

Pay off one at a time

Put together a plan to pay off each of your cards, one at a time. Each month, start by making the minimum payment on each of your cards, except for the highest-interest card. For that one, pay it down as much as possible each month. As you successfully pay down each card, you will get a feeling of accomplishment that will encourage you to keep fighting your debt monster until it is completely dead. By paying off the highest interest cards first, you will be freeing up more money each month to pay down your remaining debt faster.

Work on your credit score

One of the smartest ways to get rid of debt that many people overlook is to take the steps necessary to improve your credit score. You could potentially save a lot of money per year in interest payments simply by improving your credit score. The reason is, a better score will mean you will be eligible for lower interest rates, and it is the high-interest rates associated with debt that keeps people in debt longer.

Buy what you can afford.

If you are an individual who wants to have a debt free lifestyle then you shouldn’t spend more than you earn each month. You should use a credit card and think of it as a useful tool to help you pay for things that you can pay off at the end of the month, but not consider it as an extension to the amount of money that you have to spend.

Debt counselling.

This involves working with a real professional debt advisor. They can show you various methods and possible means you can take to become debt free. An advisor can guide you while lending their knowledge of each step of the process. You will be able to choose the one most suitable for you.

If you are looking to get a debt-free lifestyle then you will need to keep track of and know what your finances are, and you will also need to resist the temptation to spend more than you have. You should also ensure, as time passes, that you are reducing the amount of overall debts that you have, even if this process is very slow.